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What is Revolving Credit?

8 min read

Last Updated: January 14, 2026

Table of contents

Key Takeaways

With a revolving credit account, you may borrow from a credit line as needed, up to your credit limit.
Credit cards, home equity lines of credit, and personal lines of credit are examples of revolving accounts.
If you keep your balances low and make on-time payments, revolving credit may help you establish a positive credit score.

Have you ever had a credit card? If so, you have experience with revolving credit. Revolving credit accounts allow you to borrow up to a limit, repay what you owe, and borrow again from the same account as needed. You may use revolving credit to finance major expenses, like home renovations; day-to-day costs, like gas and groceries; or unexpected expenses, like car repairs. Understanding how revolving credit works may help you manage your debt responsibly.

Revolving vs. nonrevolving credit

Depending on your financial situation, you may have both revolving and nonrevolving credit accounts in your credit history. Revolving credit accounts include credit cards and lines of credit. Nonrevolving credit accounts, also known as “installment credit accounts,” include installment loans, like personal loans or mortgages.

Revolving accounts are open-ended lines of credit that you may access over and over again. Installment accounts, on the other hand, are closed-ended; you borrow a lump sum and repay it over time.

Revolving credit

A revolving credit account gives you access to a set credit line. You may borrow money from that credit line as long as you don’t exceed your credit limit, which is the maximum amount you may spend on that account at one time. When you make purchases with your credit card, for example, you’re borrowing from the line of credit that your physical card gives you access to.

Each transaction you make with your credit line increases your balance. As you pay down the balance on your revolving account, you free up that portion of your available credit. You only pay interest on the credit you use, not your total available credit.

Nonrevolving credit

With a nonrevolving credit account, you borrow a set amount of money from a lender, which you typically receive as a lump sum, like a personal loan. You repay the loan in installments over a set period, usually with interest.

You might have different installment credit accounts to finance specific expenses, like a car loan, mortgage, or student loan.

You can’t access an installment loan as needed, like you can with revolving credit. Even if you pay off your installment loan, you’ll have to enter into another loan agreement or apply for a new loan to access additional funds.

How does revolving credit work?

When you open a revolving credit account, the lender typically approves you for a set credit limit based on your credit history and financial situation. The available credit on your revolving account changes as you spend and pay down your balance. Each purchase increases your credit usage and decreases the credit you have available.

Any balance you carry on your revolving credit account between billing periods typically accrues interest. Interest rates vary, but revolving credit often has higher interest rates than nonrevolving credit. You may avoid interest charges on certain revolving accounts by paying your balance in full each month.

If you have a balance, you typically have to pay at least the minimum payment by the due date at the end of each billing cycle. When you make a payment, your available credit goes back up.

For example, say you spend $400 on a credit card with a $2,000 credit limit. The available credit on your revolving account would go down to $1,600. If you paid off the $400 balance before the end of the billing cycle, your credit limit would return to $2,000.

Some revolving accounts may have set borrowing periods, while others remain open until you choose to close them.

What are the different types of revolving credit?

There are a few common types of revolving credit: credit cards, home equity lines of credit, and personal lines of credit.

Credit cards

Credit cards are the most common revolving credit accounts. When you open an account, the credit card company typically offers you a credit limit and interest rate based on your credit history and financial background. To qualify for the best terms, you may need a strong credit score, positive payment history, and adequate income to cover your credit card payments. Credit cards may offer benefits like rewards on every purchase or travel perks. Some credit cards may charge an annual fee. Discover^® has no annual fee on any of our cards.

Traditional credit cards are unsecured, meaning they don’t require any collateral. However, if you don’t have a strong credit history and you’re having trouble qualifying for a credit card, you might opt for a secured credit card instead. Secured cards require you to back the credit limit with a refundable security deposit. Because secured cards aren’t as risky for lenders, they’re typically easier to qualify for than unsecured cards.

Did you know?

The Discover it^® Secured Credit Card helps you build your credit history with responsible use.² There’s no credit score required to apply.³

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Home equity line of credit

A home equity line of credit (HELOC) is a credit line that you secure with your home equity, which is the difference between the value of your home and the amount you owe on your mortgage. Your home acts as collateral.

According to the Federal Trade Commission, you may access funds from a HELOC as needed during an initial draw period, up to the credit limit. Once the draw period ends, you enter the repayment period. You may repay your entire balance or make payments throughout the period until it’s paid off. Typically, you pay interest only on the amount you borrow. A HELOC may have a variable interest rate, which means your interest charges may change over time.

The lender may take possession of your home if you don’t repay the HELOC according to the terms you agreed to, so it’s important to manage the credit line responsibly.

Personal line of credit

Some lenders may offer a personal line of credit without a physical card. Like a HELOC, a personal line of credit may have a set draw period and a set repayment period. During the draw period, you may borrow from your credit line repeatedly up to the credit limit, as long as you make at least the minimum payment each month.

When the draw period closes, you enter the repayment period. You have to pay the entire balance, plus interest, by the time the period ends.

What are the benefits of revolving credit?

As long as you manage revolving accounts wisely, they may help your financial life in multiple ways.

Build credit history

Your revolving credit accounts often have a lot of influence over your credit history. Payment history and credit utilization ratio, which is the portion of your available revolving credit in use at one time, are two of the most impactful credit score factors.

Managing credit cards and other revolving accounts responsibly, by making on-time payments and keeping your credit utilization low, may help you establish a healthy credit score.

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If you only have installment accounts, like student loans or mortgages, revolving credit may also help your credit score by improving your credit mix.

Access funds as needed

Revolving credit is flexible. If you have an unexpected expense, like a veterinary bill, you may not have time to take out a personal loan. But if you have a revolving account, like a credit card, you may be able to manage the cost quickly.

Improve cash flow

Revolving credit accounts may help you navigate tricky payment schedules by managing expenses between your paychecks. For example, if you need to fill your car’s tank on Wednesday, but you don’t get paid until Friday, you might use your credit card to buy gas. Then, when you get paid, you may pay off the balance right away to avoid interest charges.

Save on interest

When you take out an installment loan, you typically have to pay interest on the full amount. But with revolving credit, you only pay interest on the money you borrow. So, if you qualify for a $3,000 credit limit but only spend $1,200, only your $1,200 balance accrues interest. Plus, with many revolving credit accounts, you may avoid interest entirely by paying off your balance in full at the end of every billing cycle.

How to manage revolving credit effectively

To access the potential benefits of revolving credit, you have to manage your accounts with care. The following tips may help you stay on top of your revolving credit.

Pay on time, every time. Missed payments may lead to late fees and hurt your credit score. If you have trouble remembering your payment due dates, consider tools like payment reminders and autopay.

Avoid overspending. While you might feel tempted to splurge, try not to spend more on a revolving account than you could afford to cover with cash.

Minimize your balance. If you can’t repay your debt in full each month, consider paying more than the monthly minimum to bring down your balance and lower your interest charges.

Monitor your credit. Check your credit report often to ensure everything is accurate. Report mistakes to the major credit bureau that furnished the report to avoid damaging your credit score.

The bottom line

Revolving credit is often a powerful financial tool for managing a wide range of expenses and building credit history. Before you apply for a revolving credit account, make sure you understand how it may affect your credit score and the steps you should take to manage it responsibly.

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